The Saudi conundrum

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In terms of the main OPEC Middle East producers, the main focus at Lisbon was clearly on Saudi Arabia, with two rather different presentations being made. Nonetheless both challenged assumptions made in recent years by the US Department of Energy and the International Energy Agency that the Kingdom could be expected to meet some 20-22-mil b/d of a projected world demand some 20-25 years hence of 120-124-mil b/d.

Matthew Simmons, the US investment banker whose critical assessment of Saudi oil production and prospects, Twilight in the Desert, is published at the end of May told Energy Economist he believed there had been a "major change in emphasis" in Saudi pronouncements concerning the Kingdom's ability to meet global demand.


"Saudi Aramco has no obligation to try and meet the wildly optimistic forecasts by the (US) Energy Information Administration and the International Energy Agency of Saudi production increases." - Jack Zagar, former Exxon, Aramco petroleum reservoir engineer
Simmons emphasized that both Saudi Aramco chief executive Abdullah J'umah and oil minister Ali Naimi were currently focusing on the Kingdom's ability to produce at no more than 15-mil b/d over an extended period, in contrast to analyses by the US Energy Information Administration that the call on Saudi crude by 2025 could be in excess of 20-mil b/d.

Jack Zagar, a petroleum reservoir engineer whose experience includes 22 years with ExxonMobil and three with Aramco, argued that it was "prudent to be skeptical of Saudi production forecasts". He argued that published critical data concerning Saudi reservoirs was sparse and that while Saudi Aramco had a good record in terms of both the capacity of its fields and operation of its fields, Saudi Arabia's own production forecasts and reserve estimates posed problems. Recent Saudi production targets, if successful, would give Aramco "the highest reserves and highest recovery efficiency of any producer on the planet", Zagar said.

But Zagar also made the point that "Saudi Aramco has no obligation to try and meet the wildly optimistic forecasts by the (US) Energy Information Administration and the International Energy Agency of Saudi production increases." In an interview with Energy Economist, Zagar took a distinctly more optimistic view of Saudi Arabia's reserve and production potential than did Matt Simmons on the first day of the conference. But he was still cautious concerning the country's long-term production potential. "I'd reckon 12-mil b/d for 30 years is probably do-able. But it would be difficult to achieve tougher targets," Zagar said.

Zagar considered that the Ghawar field, the mainstay of Saudi production, was capable of producing at around 4-mil b/d for a few years yet. He said: "In all probability and Matt Simmons would argue that Ghawar peaked at 6 million b/d some years ago compared to current output of four to five million b/d Ghawar can continue at around four million b/d for some years. But within the next five years it will, like all other mature fields, enter a typical decline phase. This might result in a 25% falloff in output during the first five years or so."

Overall, Zagar considered it reasonable to suppose Saudi reserves of Oil Initially In Place (OIIP) to be around 600-bil barrels which, with a 50% presumed recovery rate, would yield initial proven and probable reserves of around 300-bil barrels. With the Kingdom already having produced around 105-bil barrels, Zagar estimated this meant it had some 165-bil barrels of proven reserves and a further 30-bil barrels in probable reserves. In other words, while Campbell was arguing that the world is now halfway through its physical production of oil, Zagar considers the Kingdom has only just passed the one-third mark.

Zagar said he believed the Ghawar field had OIIP reserves of 200-bil barrels, of which 57-bil barrels had been produced. "At the northern end of the field 60% recovery was attained," he noted. Saudi Aramco, he argued, "might be able to get 50% recovery for the field as a whole, so therefore there are 43-50-bil barrels still to recover." Zagar said Saudi Armco's statement that 48% of the field's proven reserves had been produced implied the company believed there might still be some reserve additions to be made to the field.

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